Investment Comment Echo Bay expected to lead Canadian gold stock

Targetting the price of gold to move upwards to the $450(US) to $500-per-oz range this year, Richardson Greenshields of Canada’s David R. James expects Echo Bay Mines to continue as the leader in the Canadian gold stock market.

That’s one obvious reason to buy the stock now, he writes in a December research report, even though its price has more than tripled to its 1986 high of $33.25 from its low of $10.38 two years ago. At presstime, Echo Bay was trading on the Toronto Stock Exchange at $32.63. Another reason to buy is that Echo Bay is a very different company than two years ago.

Effective Jan 1, 1985, Echo Bay acquired a 50% joint venture interest in the Round Mountain, Nev. heap-leach gold mine through the acquisition of Copper Range for $55 million. In November, 1985 the Sunnyside mine in southwestern Colorado was acquired for $20 million. Most recently the gold assets of Tenneco Minerals were acquired for about $130 million.

As a result, Echo Bay’s net gold production interest will rise from about 300,000 oz in 1986 to about 475,000 oz this year, a production level about 2.6 times that of 1984.

While these production figures may have been accepted by the market in today’s gold market environment , the additional ounces of production are bound to pay off in the next upleg of the gold market, says Mr James.

Also contributing, however, are the following lower profile corporate developments.

* The $25-million shaft deepening and underground exploration/development program at the Lupin mine which is expected to increase proven and probable reserves substantially — possibly doubling the 3.06 million tons averaging 0.34 oz gold per ton at the end of 1985. This would allow a meaningful decrease in depreciation charges after 1987.

* Feasibility work on Type II ore at Round Mountain has been completed. As reserves stand at 117.9 million tons averaging 0.039 oz it is possible that gold production could be at least double should Echo Bay’s partner Homestake Mining, take a longer view of the project, says Mr James.

* The Illipah, Nev. project gained through the Tenneco acquisition may at least turn out to be a short-life cash generating project producing 17,000 oz to 24,000 oz of production annually.

* The Randsburg project in California with reserves of 5.1 million tons averaging 0.05 oz could produce an additional 38,000 oz beginning in 1989.

* Not of least importance, says Mr James, is the decision to go ahead with the $3.6-million underground program on Nuinsco Resources’s Cameron Lake gold deposit near Kenora, Ont., where drill indicated reserves stand at 1.6 million tons averaging 0.16 oz including higher grade tonnages. Echo Bay can ultimately earn a 49.2% interest in Nuinsco itself.

Looking at the financials, earnings in the first nine months of 1986 amounted to 53 cents per share on gold production of 212,600 oz with an average cash cost of $187(US) per oz versus earnings of 53 cents per share on production of 192,400 oz with cash costs averaging $189 per oz in the comparable 1985 period.

Earnings in 1986 are estimated at 80 cents per share rising to $1.50 per share this year reflecting the Tenneco acquisition and a $450 gold price.

Echo Bay’s international profile should not be forgotten. Officially the stock looks to be owned about 67% in the U.S., 31% in Canada and only 2% in Europe, but actual European ownership, through North American holdings is thought to be in the 15% to 20% range, says Mr James.

This wide-spread ownership and the stock’s numerous listings cast Echo Bay as Canada’s highest profile gold stock.